Is It Still Worth Acquiring Sprint?

If any other telecom company had turned it the earnings results we saw this morning from Sprint Nextel Corp. (NYSE: S), that company’s shares would have dropped at least 10% if not more. Sprint posted an EPS loss of $0.21 on revenues of $8.7 billion, which was better than the consensus estimate for a loss of $0.33 per share and just slightly better than the consensus revenue estimate of $8.71 billion. The company also said that it lost 560,000 customers in the quarter.

But Sprint’s value is not in its operations as much as it is in its assets. Specifically its 51 MHz of wireless spectrum and another 133 MHz that the company has offered to buy from Clearwire Corp. (NASDAQ: CLWR). The total exceeds the wireless spectrum held by Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T) combined. It’s a massive amount and its value could be well more than the two bids now on the table for Sprint.

Japan’s Softbank has offered to pay about $20.5 billion for a 70% stake in Sprint and Dish Network Inc. (NASDAQ: DISH) has topped that with an offer worth $25.5 billion. Today’s vote by shareholders of MetroPCS Communications Inc. (NYSE: PCS) to accept the sweetened takeover deal from T-Mobile USA continues the merger mania in the telecom space.

The odd thing is that none of the established telecom players can make a bid for Sprint. U.S. regulators would turn such an offer down flat as anticompetitive. So that leaves only deep-pocketed new entrants into the wireless carrier space.

We noted last week that Softbank, while it has experience in the Japanese wireless market and very deep pockets, may have only a limited strategic plan for Sprint. Dish Network wants to use Sprint to change its business model. That makes more sense to us.

Are there any other players lurking on the sidelines? Media companies and cable companies seem content so far to try to cut themselves a larger piece of the revenue pie by charging heftier licensing fees. That’s probably short-sighted, but then these guys have never been known for their vision. And Sprint is just too large for a smaller wireless carrier to swallow, and it’s market position doesn’t make it very attractive even for private equity or hedge fund buyers.

Sprint is surely worth buying, but the universe of potential buyers is not going to get any bigger unless another foreign buyer jumps in. A Chinese wireless company would be an obvious suspect, but all three of the large Chinese carriers are busy spending billions of dollars just to get their 3G networks up and running. None will want to bite off another network buildout at this time.

Sprint’s share price has dropped about 0.6% so far today to $7.06 in a 52-week range of $2.31 to $7.35. Because the Softbank offer is right around $7 a share, don’t expect to see much action up or down in this stock unless another potential buyer appears.